Macro Exam 1
Suppose that Katie's nominal wage rate was $20 per hour during 2017, the base year for the CPI. IF the CPI is 120 and her nominal wage rate has risen to $22 per hour, what is her real wage rate in 2017?
$18.33 = 22 x 100 / CPI
In 2108, Computers Inc manufactueed personal computers worth $20 Million. If $16 Million worth of them were sold in 2018 and $4 Million worth of them remianed unsold in the year end and were added to the year's inventory, how much did Computer Inc contribute to 2018 GDP?
$20 Million
Suppose in 2108, private investment spending was $500 Billion. Government spending on tools and equipment was $300 billion, and that year the total depreciation in the economy was $250 billion. How much did the stock capital increase in 2018?
$550 Billion
Efficiency implies that
-That there is no scope for improvement by reorganizing the resources -It is impossible to obtain gains in one area without losses in another
Some alternative measures of business cycles
-The Chicago Federal Reserve National Activity Index -The Conference Board Leading Economic Index -The Yield Curve (Upward slopping or inverted)
An important source of an increase in labor productivity (Q/L) in an economy is
-an improvement in the quality and quantity of human capital -Capital deepening -an increase in the capital labor ratio -technological progress
Pure market economic system
-competition (supply and demand) determine the allocation of resources -consumers decide what goods to be produced
Some important macroeconomic goals are
-full employment -price stability (neither inflation or deflation)
National Activity Index
1. A weighted average of 85 indicators of national economic activity. 2. An index of ZERO indicates that the economy is growing at its historical rate. 3. Negative indices mean that the economy is growing slower. a. an index below -0.7 following a period of expansion suggests high likelihood of recession 4. Positive indices mean that the economy is growing faster than its long-term trend.
Keynesian Economists
1. Believe that an active government role is needed to ensure economic activity is promoted. 2. Believes that government policies will spur growth.
Classical economists
1. Believes that raising debt is unsustainable. 2. Believes in relying more on the market forces to dictate economic actions. 3. Was the dominant form of thinking when macroeconomics was based upon microeconomic thought.
Yield Curve
1. Curve that shows the interest rates for bonds (y-axis) with different maturity rates (x-axis). 2. If the IR on a 10-year T-bond is less than the IR on a 3-month T-bill, a recession is likely to occur. a. true for 7 of last 8 recessions
Leading Economic Index
1. Established by The Conference Board; uses ten important indicators to produce a weighted index. 2. LEI predicts a recession whenever the index falls for three consecutive months. a. successfully predicted the last 7 recessions since 1969
GDP per Capita
1. GDP / total population. 2. Measures the relative standard of living of people in different countries. 3. Does NOT account for differences in wealth between the rich and poor.
Personal Consumption Spending
1. Goods and services purchased by residents of the US; individuals or businesses. 2. Includes durable goods, nondurable goods and services. 3. Accounts for nearly 70% of GDP; services are the largest part of personal consumption spending.
National Income and Product Accounts
1. National accounts that allow economists to judge the nation's economic performance, compare US income and output to other nations, and track the economic condition across business cycles. 2. Developed by the Department of Commerce - DOC. 3. Developed by Simon Kuznets - helped by developing methods to calculate the size and change in national income.
IF in a hypothetical economy, the CPI for 2107 is 112, the typical basket purchased by an urban household that year would cost
12% more than the same market basket purchased during the base year
If there is always constant tradeoff between goods A and B in an economy, then that country's the productions possibilities frontier is:
A downward-slopping straight line
The Wealth of Nations (1776) was written by
Adam Smith
The invisible hand principle and the automatic adjustment to full employment equilibrium in a lassie-faire economy were strongly believed by
Adam Smith
The production possibilities curve represents the possible combination of two goods that an economy can produce
At a certain time, under the condition of efficient and full production, and the given level of technology
Natalie is 19 years old and acts in movies. She earns $600,000 for her acting in a movie. Cassandra is 19 years old and works in a clothing store at the nearby shopping mall. She earns $10 an hour. Which of the two persons is more likely to attend college and for what reason?
Cassandra, because she has lower opportunity cost of attending college than natalie
In a command economy, the main economic goal is
Complete full employment
The three fundamental economic questions that every economic system must answer are:
For whom will be goods be produced? What goods will be produced? How will the goods be produced?
GDP formula
GDP = C + I + G + X, GDP = value of consumption + gross investment + government purchases and net exports
Government expenditures
Gov purchases (spending on goods and services, construction, salaries for gov employees...) and Gov transfer payments (increase incomes of targeted groups like elderly or unemployed)
In macroeconomics, which of the following economic activities-items is considered as a non-market activity and hence it is not included in GDP?
Growing vegetables in your backyard garden
What is an example of a positive economic statement
If the price of oranges falls, the quantity of demanded oranges increases
Suppose that the Federal Reserve Bank of Chicago's National Activity Index changed in July 2016 to +0.16 from +0.28 in June 2016. From this data, we can say that
In the United States, economic activity was above its historical trend in both June and July 2016, but its economic growth declined some what in July.
The optimal amount of pollution from the society's point of view is when
MB of pollution is equal to MC cost of pollution
Monetary Policy
Managing a nation's money, credit and banking system (raising interest rates when inflation threatens to rise too high)
Potenial GDP
Maximum sustainable level of output that economy can produce (high levels of labor force and capital stock utilization; during business downturns, actual GDP falls below its potential and unemployment rises!
Capitalism and Freedom (1962) was written by
Milton Friedman
Real gross domestic product (RGDP) can be defined as
Nominal GDP x 100 / GDP Deflator
Transfer Payments are
Payments for which no services are rendered during the current period
In what economic situation does a country's standard of living certain to increase
RGDP increases at a faster rate than of its population
What is the difference between nominal gdp and real gdp
RGDP is adjusted for price changes (inflation or deflation) in the economy, and GDP is not
The phase of a business cycle that is characterized by rising incomes, increasing consumer and business confidence and falling unemployment rate is termed as:
Recovery or expansion
Hyperinflation
Rise in the price level of a thousand or a million percent a year
If a new discovery of some resource is made for the level of technology improves, the PPF will:
Shift outward
If it id possible to produce more of one good without getting less of another, then currently:
The economy is operating inefficiently
Macroeconomics approaches the study of economics from the viewpoint of
The entire economy or the aggregate total economy
John Meynard Keynes, the author of The General Theory of employment, Interest and Money, Advocated
The government should play an active role in the economy, using fiscal policy actions (cutting taxes and increasing government spending to create full employment)
Mary Taylor attends the university of Nebraska-Lincoln. The opportunity cost of her attending college is
The highest valued alternative she forfeits to attend college
When a market economy exhibits both allocative and productive efficiency, then it is producing:
The maximum output which consumers want to buy with the available resources and technology using the least cost combination of inputs/resources
Classical economists such as Adam Smith and JB Say believed that
The policy of laissez-faire will enable the economy to achieve full employment
Economics is
The science of scarcity of economic resources
Which of the following topics is considered a microeconomics topic?
The study of factors that determine the price of market shares of general motors in 2017
GDP (Gross Domestic Product) is defined in macroeconomics as
The total market value go all final goods and services produced for the market place during a given period within the boarders of a nation
Aggregate Demand
Total amount that different sectors in the economy willingly spend in a given period (total spending on goods and services; depends on price level, monetary policy and fiscal policy)
Aggregate Supply
Total quantity of goods and services that the nation's businesses willingly produce and sell in a given period (depends on price level, productive capacity of an economy and level of costs)
Fiscal Policy
Uses of tax and government expenditures
Comparative Advantage
ability to be better suited to the production of one good versus another
productive efficiency
achieving as much output as possible from a given amount of input or resources
Relative economic scarcity exists
in all countries of the world
principle of increasing marginal opportunity cost
in order to get more of something, one must give up ever-increasing quantities of something else
globalization
increase integration of economies, cultures, and institutions across the globe
Price Index
measures of the overall price levels
Ceteris Paribus is
other things being equal
Under pure command economic system/ collective economic system
the government determines the allocation of resources in the economy
If wages paid per hour of your work rise then
the opportunity cost of an hour of leisure increases
The unattainable region of a production possibilities frontier includes
the points above the PPF